Ed knows how to woo the Unions. His threat that the banks will have to be split, detaching investment banking from High Street banking, will be popular with the Unions. It will send a subliminal message to the many that Ed is on their side, because he is against the big banks.
It does not seem very likely,were there to be a future Labour government. After all, the last Labour government encouraged the build up of the large comglomerate banks. It welcomed the foolish mergers which brought about RBS. It flagged them through the system. The regulators just stood and watched as the debts were heaped up. It helped push HBOS into Lloyds arms. It left state owned RBS intact, and appointed management with the task of trying to make it a successful conglomerate.Seeking the break up would be quite a volte face from previous policy.
Simply splitting investment banking from High Street banking would not have stopped the 2007-8 crisis anyway. Northern Rock, Bradford and Bingley , Freddie and Fannie, were all regular mortgage banks. They were not brought down or put into financial difficulty by irresponsible investment banking arms. Threatening to enforce the split in a global bank like HSBC might simply lead to it leaving London, or might prove beyond any UK government’s jurisdictional reach.
The one bank that could be split up, and should be split up, is RBS. It is a pity the Labour government did not do it in 2008-9. It is a pity the incoming Coaliton government did not issue new orders and negotiate new requirements and contracts with the incumbent Board in 2010, and seek to break it up then. Cross party consensus on splitting RBS would now be welcome.
Those few of us who argued in 2008 that RBS should have been put into controlled administration, with short term liquidity support and proper deposit protection, were shouted down. Instead government decided to bail out the bondholders and lose a fortune on buying shares. Now we have won the argument for a “next crisis”. The Vickers Report, the FSA and the governmant all agree that any future large bank in trouble should be put into controlled administration, following its “living will”.
If that makes sense for a future crisis, why don’t we get on and do it now to clear up the large overhang of the last crisis? Whilst RBS is largely state owned, it provides a means of testing the theory.
October 1, 2012
Natwest/RBS is perhaps the single main reason of the lack of growth in the UK economy, they have pulled back £Billions of perfectly sound loans just to fill the black hole that they created with idiotic acquisitions. This has had entirely predictable results and worse still at a time when other banks were also not lending much. Millions of projects delayed or cancelled and countless jobs destroyed for no good reason other than lack of lending.
It should indeed have been put into controlled administration and the good bits and loans sold off as you say. With the shareholders and bond holders taking the losses.
Having read the rights issue document, I do, however, have some sympathy with the shareholders. I have none with the accountants, accounting regulations boards, the regulators or the directors who must surely have known the true position at the time of the rights issue. They seem to get away will murder time after time and even get paid handsomely while doing it.
October 1, 2012
Still some good new on stopping the need for a licence for live music. They should however combine it with some real volume limits so that the next generation do not all go deaf. Also get rid of the absurd tax on playing the radios/music at work. The expensive PRS or PPL royalty fees that one is mugged for as an employer. Surely it should be paid for by the radio station if anyone and why two? Personally I would pay more to have it all switched off but the staff do not agree.
October 1, 2012
This is very bad news if like me you live next door to pub that currently cannot get licences for live music because it is in a residential area. There wll presumably now be no constraints on it.
October 1, 2012
Just go to the pub when it is playing. Problem solved!
October 1, 2012
PRS licenses are for copyright, not local authority entertainments bureaucracy.
October 1, 2012
Sharon Bowles (MEP) article in the Dt claims that most of Europe blame the UK and its banks for the debt crisis. Normal Europhile scare mongering how the UK must be in at the table or it and its bank might be closed outside the Eurozone market etc etc. Good, let us hope so. Perhaps the FSA could then write its own regulations rather than pass on what is written from the EU.
October 1, 2012
Copyright is nothing to do with the TVL, bar the fact that the BBC pay the rights owners for broadcasting their works, as a free market person I’m sure that “lifelogic” would not wish to see these people not paid for their work. In other words “life(ill)logioc(al)” -at times-, if you must rant about the BBC all the time go do yourself a favour, go lean some basic facts first!
October 1, 2012
(A personal attack on Keith Vaz, his past actions and suitability to be an MP -ed)
reply: I do not have time or legal resources to check this all out.
October 1, 2012
The coalition has proved to be a disaster in achievement to help the country’s economy. How long does it take to bring about change? If business acted in the same slow demented way they would be broke.
Today is the launch of the new government pension idea. Did anyone in the government consider how the public might be put off paying for a pension after successive government’s have wrecked both private and public pension schemes? I suspect all schemes started 30 years ago have been changed by the Government from what they initially stated. Taking these as examples it would be foolish of the public (private or public sector) to trust any government to keep their side of the bargain. Similarly why save when the government is deliberately keeping interest rates low. Only the feckless wasters benefit from government. I would advise all young people to move abroad or spend for today and let the government pay for you tomorrow. It is the only way to get a fair share of the tax you pay.
October 1, 2012
I see that after Sunday lunch with Cast Iron, Boris is engaging in Psyops in the DT…….Of course, he does not mean David Cameron….perish the thought……but the headline that sticks in the mind is the title….Boris, Dave, and Eton are firmly in the public mind.
zorro
October 1, 2012
Same here .
People are going to be angry when they find that the investment returns don’t keep pace with inflation let alone the discount rate upon which public sector pensions contributions are based .
When they find out that their £100,000 annuity only buys them a £3,000 inflation linked income and reduces the amount of means tested benefits they are due they will wonder why they bothered .
Hardly anything done to reduce the cost of living to generate a surplus which could be saved either .
What can you expect when the people who come up with such schemes will never have to use them ?
October 1, 2012
Indeed it is a case of investing on a this basis and the politicians will move the goal post about 20 times by the time you retire. Each move will make it worse. You will then have to buy a duff return annuity (lend to the government cheaply in effect) at the end and get fewer means tested benefits as a result.
It will squeeze the state sector businesses and workers further, in effect yet another tax.
It is hard to see how an honest financial advisor could recommend these pensions for most. Anyone already borrowing money would almost certainly be better just paying that off. You do not really get tax relief – just deferment for 75% anyway.
Only really works for 40% tax payers, who will not claim benefits, have no expensive personal borrowing and will be in 20% tax on retirement. In short almost none – an absurd scheme at this time.
The planning rules that enforce builders to provide low cost housing usually for the state sector or benefit claimants are yet another back door tax. Pushing up housing costs for all the rest.
October 1, 2012
BBC reporting on the new pensions.
“A huge reform in pension provision for millions of low and middle earners has been given a cautious welcome by trade unions, employers and charities.”
Clearly they did not ask anyone sensible or honest or they are just lying.
October 1, 2012
Splitting the banks is not needed and would, I am sure, send HSBC and many others away from the UK. I cannot understand why HSBC it is still there it is not in their shareholders interest. Not that HSBC are lending much in the UK either, at sensible rates.
The Capital rules having been much too loose are now far too tight. Government are borrowing cheaply and wasting it hand over fist but the productive job creators cannot borrow easily and if they can they are being robbed on rates, fees and terms.
October 1, 2012
I actually think the splitting of the banks is a good idea. The Glass and Steagle scheme worked for many years. Directors should also be held personally liable. It would be the best regulation to focus the mind and to stop recklessness and stupid risk. JR is correct, RBS and others should have gone into controlled liquidation. This should not be a taxpayer issue. What were the personal consequences for the bankers concerned or the ministers that allowed it?
I also think government ministers ought to have personal liability attached to them so there are consequences for their actions. They have financial benefits in additional tax free payments and better pensions, former PM allowance- automatic irrespective of performance. So the need for balance and a consequence for bad performance is desperately required. It is the only way to concentrate the mind, as they view large sums of taxpayers’ money as abstract amounts that have no meaning to them or their decisions- there could be limits ie forfeit their pensions, house or whatever. But a personal attachment is now crucial as a punishment for wrong doing/ recklessness. It would also stop the serving government spending money to buy votes. Most ministers are in safe seats so they do not even lose their job (as they should) when voted out of office.
October 1, 2012
I do not think a full split is needed the risks can be controlled by good regulation without a full legal split and with a suitable living will. We do not want them all to leave.
October 1, 2012
‘Good regulation’…..Was that lifelogic who said that?….. 🙂 That so elusive golden nugget….I think that Glass Steagall is the least worst option, and I doubt that the banks would leave. It may even stabilise the situation.
zorro
October 1, 2012
Good regulations are fairly easy to formulate, the problem is regulators often go rather native after a while, I agree. Look at the utilities for example, the legal profession and many others.
October 1, 2012
Amazingly, we just went a dozen or so comments without the baloney of so-called ring fencing being mentioned. We don’t need ring fencing–what we need is a thousand miles of clear blue legal sky between Retail and Investment and if the wretched Investment banks (which these days, as I personally know, have nothing whatsoever to do with what the man in the street might call banking) want to leave then gr8. Glass-Steagall undoubtedly worked. One couldn’t let Barclays go bust and it wouldn’t without Barcap I think it’s called.
October 1, 2012
A full split is long overdue. As would the return of unlimited liabilty banks. Now that might encourage (possibly small) well ran banks.
It would have enabled public support to be given to the retail side as they were restructured or special controlled admin. With the taxpayer picking up the tab only after directors,shareholders,bondholders and larger depositors.
It’s a shame Paul Volker isn’t 15 years younger.
Keep it simple. Let capitalism work on them for a change.
QE direct to the public (Per Steve Keen) to enforce debt paydowns and let the adjustment work through.
Oh and prohibit privately owned banks from creating interest bearing debt money. They would then only be able to lose what they could secure in deposits/bonds making the system much more stable.
The government could then manage the money supply directly by spending it into existence by contracting or directly bridge building, roads, houses and schools etc and even nuclear reactors based on zero public interest cost.
Taxation/penalties could be used to remove excess money supply on things like. Anti-competitive behavior. Libor fixing , front running, insider dealing, bribery corruption. Breaches of banking codes etc etc.
Breaches of immigration law by companies, breaches of min pay legislation or health and safety rules. Breaking rules on conflicts of interest for all politically exposed individuals including parliamentarians.
Taxes on low labour income should be minimal to low. Taxes on very high gains should be set progressively higher and remain simple.
Why continue putting on the banks and politicians? Because control of money creation is control of democracy of freedom. Its also pretty well linked to funding peace and war.
October 1, 2012
Lifelogic, on lending, always on different planet from me and I somehow doubt he has ever had to make any lending decisions. As already stated I have led teams making enormous loans so I think have relevant direct experience but not just of large loans. What comes to mind, and with the economy poorly as now, I remember for instance asking one prospective borrower, what would today be called an SME, how much Capital he was proposing to put in–to be told, Er, I thought you would be providing the Capital. You’d be surprised what we were asked but however you stack it up the idea of lending what one didn’t feel safe to lend for the sort of considerations Lifelogic goes on about, would have been rightly thought demented.
October 1, 2012
I have been borrowing for both trading businesses and property developments/investments for about thirty years. I started with no capital and now have substantial assets and considerable experience.
I have never known it to be as hard to borrow at sensible rates or indeed at all, as it is now. This even with good security, a good record and my capital available. Not even during Majors ERM fiasco was it this bad. The banks are only looking a very straight forward cases, second charge lending is not available, development funding is very expensive and at very low LTVs. In addition the banks want their surveyor crawling over everything at your expense too. If I cannot borrow on a reasonable basis what chance is there for smaller businesses with less equity?
A development that I could have done with perhaps one million of my capital plus say 75% LTV of borrowings on the plot value now perhaps takes two and a half million of my capital to complete. So less than half the activity results project on hold. Rates, fees and margins are all very high too. More to the point decisions are very, very slow.
So the country has lots of builders and others not working (a wasted asset), little growth, low tax revenues and large benefits to pay.
October 3, 2012
Well done, congratulations on the business side.
Now when did Nixon take the $ off the Gold standard and what has happened to the value of fiat currency as a result since?
What has happened to property prices and ratio’s of price to earnings. How much of the gains were inflation in the economy?
Indeed i dont think its difficult to understand why banks are reluctant to lend on property. The Bank of England now must enable a manipulated market to enable them to survive. We should have had deflation in certain assets, but this has not been allowed, so the real estate business is subsidized indirectly by fiat debt financing.
Maybe a hard reset would have been better. The surviving and new banks would be working off a firmer foundation. A lot more of the frauds and mistakes would have been uncovered and maybe even better regulation,self-regulation, laws and behavior would follow.
October 1, 2012
RBS had Scotland in the name so of course Brown couldn’t be seen to let it go bust (see items such as the aircraft carrier deals for the partisan nature of some of his decision making).
The govt provided liquidity, increasing share prices, then bought into RBS at vastly over value (above 3 times the share price if I recall correctly). in doing so getting a terrible deal for the taxpayer whilst providing the owners (& directors) of a failed business with a bail out.
In some ways the consolidation of the banking industry & the increased risk of the “too big to fail” phenomenon goes back to the carpet bagging of the 90s decimating much of the mutual sector. This in turn could be said to relate to greed of customers, with some of what has happened since being the price to pay for the short term gains.
As to Miliband; his anti-business rhetoric is hardly going to give people confidence that investments in UK operations will provide a positive return. In turn the uncertainty this creates (to attempt to shift the blame for our current financial mess; aided by certain sections of the media) serves to make things worse & to delay what recovery we can make with an over-geared economy running a huge current account deficit due to feeling we have an entitlement to live beyond our means.
Maybe in time the kind of reality Mr Redwood mentions will be accepted, but until then wilful self deception of the unions & their front man Ed seem to still have a degree of traction, relatively unchallenged by a weak coalition government lacking a coherent narrative.
October 1, 2012
Don’t forget GB also ruined Lloyds by persuading Victor Blanc (between the ears} to take over the other Scottish bank linked to Halifax.
October 1, 2012
Indeed another idiotic way of dealing with the Halifax problem while robbing Lloyds shareholders of value.
October 1, 2012
GB liked and supported the Lloyds takeover because HMT did not have to step in. My parents, in their 80’s had a large slug of the retirement savings in Lloyds and RBS. One safe bank (Lloyds) one doing interesting things (RBS) was the rationale. Their income dropped dramatically overnight. Everyone in government and regulation was asleep at the wheel, yet the credit crunch had been widely predicted. Only the bankers have got the blame. As JR said recently, perhaps one day people will learn to share the blame with overspending politicians and the way the Euro was put together.
October 1, 2012
I am going to go on a holiday to Iceland in December, I hope.
But then, to politicians, Iceland does not exist.
You are so right about RBS!
October 1, 2012
I thought it notable that RBS’s Stephen Hester gave a lengthy press interview at the weekend on the tough task of ‘cleaning up’ banking’s image. But this morning his own bank stands accused of active involvement in a grubby commercial property scam.
As per Mr Redwood’s piece here: the fact that this scam is a retail not investment fraud would tend to support his argument.
Size may be important, but it’s the ethical problem that most needs to be faced.
October 1, 2012
Any and all state owned banks should be sold off, preferably in smaller units but any way would do. Controls should be removed, bailout funds reclaimed as much as possible, restrictions on forming new banks eliminated and state backed guarantees on accounts ended. Let the free market regulate banks. If everybody knew their money was at risk in a reckless bank the first sign of any bank pushing their luck would cause a run on that bank and it’s rapid demise. That’s the way it used to work and it kept everybody honest (mostly). It is regulation and the removal of risk for banks that has caused the problem.
October 1, 2012
Completely unrealistic. For example, what happens to the financially unsophisticated in a bank run and given no “state backed guarantees”? They’d be ruined. The electorate just wouldn’t stand for that.
Thus state guarantees are here to stay, like it or not.
Given that unavoidable fact, how do we ensure the state does not end up giving astronomic subsidies to banks, which is what it’s been doing for decades? Well it’s easy. Implement full reserve banking.
That system involves virtually no state subsidies for banks, amongst other reasons because it’s near impossible for banks to fail.
The reasons are a too complicated to spell out in full here, but if anyone wants to Google “full reserve” and “fractional reserve” (which is the system we currently have), they’ll find there is practically no one prepared to defend fractional reserve any longer.
October 1, 2012
Full reserve banking would stabilise matters but would lead to slower growth (no bad thing bearing in mind where growth has sometimes led us). Fractional reserve banking is attractive because it fuels growth, therefore taxes……and money for politicians to spend!
zorro
October 1, 2012
Full reserve banking.
Slower real growth possibly maybe. The government could control the supply of money and demand by reducing tax or spending directly or indirectly via tenders/auctions for example to build houses. It would control to a large extent any resultant price increase resulting from excess creation of money.
Banks could still intermediate between savers/loaners.
October 1, 2012
I don’t see why full reserve would lead to slower growth. Growth is driven in the long term by technological improvements. In contrast, the exact structure of the banking industry is relatively unimportant.
Full reserve would certainly lead to less violent GYRATIONS in growth, i.e. less boom and bust: it was the fact of commercial banks creating and lending out excessive amounts of money prior to the crunch that largely caused the crunch. For a chart showing the expansion of commercial bank created money relative to central bank money prior to the crunch, scroll down a bit here:
http://tutor2u.net/economics/revision-notes/a2-macro-monetarism.html
October 1, 2012
Ideally yes, but practicalities suggest that some deposit insurance should be available. The vast majority of the population only have small amounts of money in bank accounts.
zorro
October 1, 2012
It is increasingly clear that a major factor in the sluggish pace of recovery all over Europe, including in the UK, is the fact that the banking system is clogged up. Its clogged up with £10 & €10 billions of loans which are not worth face value but have not been written down – either because the credit is bad or becasue they were priced 3 or 4 years ago at far below where they now would be. At the same time, the banks are being given until 2019 to achieve the new capital adequacy targets. There are 2 ways for them to do that: wait and hope and be very restructive in lending, or raise new equity. But new equity will only come from the markets if balance sheets are clean. I agree RBS should be broken up – but the government should go further and insist on a balance sheet cleansing, on much faster achievement of adequate capital ratios, and – as a quid pro quo for state support – insist that this is down by raising new equity. The state could backstop such equity issues but only at true value – ie potentially at a loss for bondholders. I cant see how we will get quick recovery without such measures. The ex-governor of the Swiss central bank appears to support such a policy.
October 1, 2012
The only way it will be solved is when those ‘assets’ are properly valued, and the bad debts are worked through the system. The politicians have no wish/desire to do this, so, at best, they will slowly inflate, QE, and let the years do the work which will mean years/decades of stagflation punctuated with mini rises/dips.
zorro
October 1, 2012
The guys who would lose don’t want to lose, they would like to influence the policy, rig the markets and dump/socialise the loss.
October 1, 2012
That is exactly right – the ‘City’ view presented to politicians is set mostly by a few hundred people who hold large numbers of bank shares. During Gordon Brown’s disasterous bank bailout of autumn 2008, the Labour Government were advised by such individuals. I’m surprised Vince Cable hasn’t picked up on this since the LibDems like banker bashing. This would be a chance to do it with the facts on their side (for once). Independent-minded Conservative MPs who believe in free markets should do so first.
October 1, 2012
I agree with that unfortuntely. But if you look at how Asia recovered in 1998-9 it was through bank balance sheet restructurings at the market clearing price. We need a clean sheet (same applies to the insolvent Eurozone countries).
October 1, 2012
Ed was on the BBC Radio 4 Today Programme a little before 8AM this morning. Interviewer Evan Davis could have put to him the very good points as set out by JR above.
But no. The topic of first interest was to speculate on the make up of a Lib/Lab coalition after the next general election! It seems unattributable briefings sparked this line of questioning, but being unattributable we know not what has been said and by whom, so can not judge if there is a serious point being made or, most likely, simply a load of rebel rousing to give a gullible and lazy press a story.
I switched off as I have got far better things to do with my time than waste it listening to this rubbish.
The BBC’s coverage of politics and current affairs is becoming increasing irrelevant.
October 1, 2012
Evan Davis’s inanities often make me reach for the off button.
October 1, 2012
I just watched last Tursday’s QT on iPlayer.
I don’t know why I did it, I should have known better.
I came away from the experience having reinforced my belief that our education system needs a thorough shake up. Good luck Mr. Gove.
October 1, 2012
The main sensible point on QT was made by Jacob William Rees-Mogg saying that the government has never managed to raise more than about 38% of GDP in taxation, even with tax rates up to 98%. So if we are spending at nearly 50% of GDP we have rather a problem. Tax borrow and waste cannot continue much longer.
Steve Coogan seem to be absurdly left wing with a huge boulder on his shoulder. What is it about these TV comedians in the “BBC think” Marcus Brigstocke mode? They just seem to believe everything they read in the Guardian without any question. Kirsty Young and Rees-Mogg seemed positive geniuses in comparison.
October 1, 2012
Kirstie Allsopp (not Young) sorry.
October 1, 2012
Kirsty cheered on the house price bubble all the way to the top and beyond.
October 1, 2012
@lifelogic
Agree yr comments.
My remark was provoked by the makeup of the audience, although I would include Steve Coogan in the same category.
Also, I found the body language between DD and HH rather nauseating.
October 1, 2012
Mr Balls was interviewed on R4 this mornin. He has identified a separate fund of money from the latest mobile frequency sell off. This, he plans to use for housing. Perhaps he will open a separate bank account to stop anyone using it for anything else, such as paying interest on HMG borrowing. The thinking of this character is on a level of his previous great leader.
October 1, 2012
@stred
“The thinking of this character is on a level of his previous great leader.”
From what I hear, the great leader’s “thinking” was largely inspired by Balls.
Notice how they use the term “to sell”, when it’s really a tax.
I suspect that the £22 bn extracted by 3G “sale” contributed to the our financial problems by hitting the balance sheets of the cell network providers. And a fat lot of good the money did once in government’s hands .
October 1, 2012
‘It’s not Brown, it’s all Balls!’……so said the man with the mane….
zorro
October 1, 2012
The man with the mane, without whom, Thatcher would have stayed as PM, lost the 1992 Major election by a small margin and Baron Kinnock, as he is now, would have had the blame for Major’s Idiotic ERM.
The whole of history would have changed and we might now be in a far better place regarding the EU strangulation of the UK. We would not have to hear and see John Major the “BBC expert” so much at least.
October 1, 2012
Not sure that Kinnock then, was the rabbid Europhile he later transmogrified into.
At one time in the past the Labour party was anti the EU, as a matter of policy.
Don’t really know what happens when they come to Whitehall, the place must be a seething nest of EUrophiles.
Once upon a time, I suppose there was the Empire, now the civil service look on the European Union as the surrogate for their Imperial aspirations .
October 1, 2012
Was it not Balls who wrote the thesis on banking which the great leader used to re configure bank regulation and form the FSA?
Can’t think of anything more dangerous than a gobby left winger with (etc)
October 1, 2012
Ed Balls strikes me as one of the most dangerous and to me dislikable people in Parliament .
More than any other , he is a megalomaniac and I fear he would be a complete dictator if he ever became prime minister .
There was no contrition from him for his part in the last Govt . Darling admitted authentically to making mistakes and comes across as genuine and decent character .
Balls is quite prepared to wreak terrible destruction just to try and prove he is and was right ,
October 1, 2012
Yes, Balls seems to have learnt nothing and yet he is clearly clever, even if his first is from an era where 20% of graduates got firsts. If we had a more forensic media that understood economics and finance I believe his position as shadow chancellor would be untenable. As it is he is able to hide behind the “it was the bankers’ fault’ background noise that is all that most voters understand. That is why ideas about breaking up banks surface as part of the reinforcement that our problems have nothing to do with politicians (overspending everywhere, and using banking for social engineering – US lend to ethnic minorities or else…”
Even now the Labour party is calling for growth – in its terms state jobs and bellatedly capital projects. Cross-rail has been on the books since the early 1990’s! Labour did little for the infrastructure – think dome.
October 1, 2012
“he is a megalomaniac and I fear he would be a complete dictator if he ever became prime minister”
Thank god we haven’t had that in recent history.
October 1, 2012
“Ed Balls strikes me as one of the most dangerous and to me dislikeable people in Parliament”.
Some competition we have there- Harriet Harman, Yvette Cooper, Keith Vaz Simon Hughes, David Laws, Chris Huhne, and all the pushers of the Green Religion, all the expense dodgers, all the say one thing do another, push the politics of envy, career politicians. Ed Balls is certainly fairly high up the list but top?
October 1, 2012
Lifelogic: “Yvette Cooper”
Let’s not forget that the double act of Cooper and Balls maintain the pretense of seperate identities, but are in fact a single unit
October 1, 2012
lifelogic: “all the expense dodgers”
Do you remember how they all turned on the hapless Derek Conway, because his conduct relating to his expenses claims was so outrageous.
I don’t care any for Conway, but it was instructive to watch how the pack of feral MPs turned on him in order to maintain their place at the trough.
It worked though!
October 1, 2012
Not a sale but a tax on the air frequencies to be paid by telephone users of the future.
October 1, 2012
Just like Cable, Miliband tries to garner support with more banker bashing. Neither of them seem too eager to split up RBS which is largely state owned. They would probably prefer 100% state ownership. It is good to have a fall guy to distract the public when politicians have a paucity of ideas about how to encourage economic recovery. The one thing all the leaders agree on is keeping the debt increasing inexorably, as they make no effort to reduce government spending.
October 1, 2012
Lefty’s generally equate big with beautiful don’t they ?
If they had actually broken up these banks and jailed some/any of the bankers they would no longer have fall guys at large to blame .
October 1, 2012
If a bank gets itself into the position where it will collapse without a state bailout then it should not be bailed out and then allowed to carry on as if nothing had happened.
If a disorderly collapse would be systemically dangerous then the state should intervene to prevent that, but afterwards it should be wound up and in due course it should cease to exist.
Northern Rock should not have been “nursed back to health”, it should have been shut down.
Retail depositors, ordinary people who sought a safe place for their savings, should be fully protected, but shareholders and bondholders knowingly chose to risk their capital for the prospect of a higher return and they should expect that they might lose everything they invested.
October 1, 2012
Agree absolutely….
zorro
October 1, 2012
Also i add directors with large rewards but minimal downsides.
October 1, 2012
So it would have been OK for creditors to foreclose on all the mortgages?
October 1, 2012
Why foreclose on the mortgages where the repayments are being made and which can easily be transferred to other lenders?
October 1, 2012
Quite, but this sensible continuity was precisely what was achieved by continuing Northern Rock in a slimmed-down form and selling it to Virgin. The old Northern Rock shareholders got nothing but many of the staff kept their jobs in a region of high unemployment.
RBS shareholders have lost about 90 per cent of their money, having already put up more cash. Lloyds TSB shareholders lost a similar amount, again after putting in more capital in a proper market fashion, because they had the hopelessly failing HBOS foisted on them, by the FSA among others. Without that, Lloyds TSB would have been stronger than Barclays, having until that moment followed a more conservative policy and kept out of investment banking.
October 2, 2012
I don’t want a Northern Rock even “in a slimmed down form” under new ownership; Northern Rock is the name of a bank which failed at huge cost to taxpayers, and which should no longer exist in any form.
October 1, 2012
Outsider: “So it would have been OK for creditors to foreclose on all the mortgages?”
Yes, echo Dennis Cooper’s comment, those mortgages represent an asset and so long as the mortgage holder is paying his principle and interest, remain valuable.
October 1, 2012
I would put you in charge Denis.
October 1, 2012
Simply splitting investment banking from High Street banking would not have stopped the 2007-8 crisis anyway. Northern Rock, Bradford and Bingley , Freddie and Fannie, were all regular mortgage banks.
==========
Quite.
Treat any of the statements by most politicians, change the word banker to (an ethnic group or similar-ed) and you see the real sentiment of what politicians are and believe in.
October 1, 2012
There is some validity in this argument. However, look at it the other way around. If Glass Steagall had not been removed and the liberalisation/hopeless ‘supervision’ of financial institutions been allowed, perhaps not so much bad debts/credit easing would have occurred…..I am agnosticish on the separation argument, but feel that it might be the only practical way of avoiding another crisis and starting again on a sounder footing. It is preferable to the zombie banking at the moment and the ridiculous Basle III type ‘cash stash’ requirements which are choking off any hope of investment. If anyone wanted to drive economies collectively into the dust and centralise power and wealth in the hands of a small elite, I can think of no better ‘peaceful’ way……
zorro
October 1, 2012
Z. Why does it drive power into the hands of an elite? Most savings are with the middle and skilled savers. Interesting idea.
October 2, 2012
QE consolidates wealth with the richest percentage of the population by artificially supporting asset values and stock market prices thus perpetuating the wealth gap between the very small percentage which controls the far greater percentage of actual wealth.
zorro
October 2, 2012
But asset values are being screwed by CG tax and inflation. So everyone is being taken, whether by cash savers or asset owners/savers.
October 2, 2012
Unless they are offshore of course. Which they are. Answered my own question. Sorry. Obvious.
October 3, 2012
Watch a few back espisodes of Max Keiser, he explains the scams in a format for the less knowledgable masses.
Quite a bit of jargon..but stick with it and you soon see the nature of the beast and the problems we face.
October 3, 2012
As you state the small percentage owning the big percentage of assets arrange their affairs so that they pay the least tax using other jurisdictions. The ‘little guy’ is the only loser in the QE permanent revolution…..
zorro
October 1, 2012
Northern Rock, a regular mortgage bank? That’s the last thing it was: it’s business model involved packaging up and selling off its mortgages which finally they weren’t able to do because the market for them dried up, and obtaining new funding from other intermediaries which also dried up because it’s major participants did have investment banking arms and did get their companies into difficulties as a direct result of their casino activities and did stop lending to each other because they wanted to conserve their cash, and did not trust their prospective counterparties being able to repay loans. That a LIBOR rate was published at the time was entirely misleading because the banks weren’t actually lending at all.
Reply The part of the model which entailed selling on the mortgages worked fine. It was the bit where they kept mortgages on their own books with depositors who loost confidence that collapsed – the traditional bit.
October 1, 2012
from wiki:
“Northern Rock had a business plan which involved borrowing heavily in the UK and international money markets, extending mortgages to customers based on this funding, and then re-selling these mortgages on international capital markets, a process known as securitisation. In August 2007, when the global demand from investors for securitised mortgages was falling away, the lack of money raised by this means meant that Northern Rock became unable to repay loans from the money market.”
Reply: it was a run on the deposit base that brought it down, not the securitisation. The Bank kept markets very short of liquidity in the summer of 2007 which started the nervousness.
October 1, 2012
I don’t think selling 120% mortgages in an overheated housing market was a particularly sound business tactic and they left themselves no leeway whatsoever to deal with a downturn.
zorro
October 1, 2012
In brighter news if you can afford a holiday Morocco have some brand new water park sounds great doesnt it anyone up for it.
October 1, 2012
Not another economy on the slide 🙁
October 1, 2012
but none of the parasites want to discuss or legislate the one policy that will ensure banks can never be too big to fail, namely: stop all socialised underwriting of the banks. Get rid of the taxpayer funded central bank(it prints money by decree , an inflation tax on we the taxpayers) , deposit insurance , and any govt bailouts.
This way bad banks will fail before they get too big to fail. That is how markets are supposed to work. Why does nobody discuss this? Because The City owns the lawmakers and the lawmakers have no spine.
October 1, 2012
As you may recall I have argued that MPs should take control of the printing press away from the Chancellor, whose QE decrees are embodied in his letters to the Governor of the Bank of England, and yesterday I suggested to Douglas Carswell that he and likeminded colleagues should try to get a full day Commons debate on QE with a suitable motion:
http://www.talkcarswell.com/home/more-muddled-thinking-from-the-cbi/2488
However I certainly don’t agree with doing away with deposit insurance.
October 1, 2012
don’t listen to labour. They, like the Tories, will say anything to get elected, and then revert to the banker’s party once elected. Two party dictatorship.
October 1, 2012
Totally agreed Gary. The taxpayer guarantee of bank deposits, understandably expanded during the crisis, is the key anti-prudential measure. No political party ( at home or abroad) will attempt to explain to people that it is ultimately not in their interest. If banks had to convince depositors that their money was safe, market forces would force them to be more prudent, though also less profitable.
October 1, 2012
But until then the guarantee of bank deposits was not a taxpayer guarantee; it was (and in fact it still is) basically an industry scheme where banks paid into a fund to compensate customers for losses caused by the failure of one of their number. It has the defect that well run businesses get hit for the costs of those that fail, a matter of complaint for eg Nationwide which had to pay in more because of the failures of others. I think it would indeed be hard to explain to busy people that they should lose their money because they didn’t spend enough of their limited time and energy sifting through annual accounts to try to work out which bank or building society was least likely to go bust. You might as well try to explain to them how it was their own silly fault that they’d got food poisoning because they hadn’t carried out proper analyses of all the food they’d bought in supermarkets, and that it would ultimately be in their interests to abolish all food safety standards. That’s how deposit insurance should really be viewed, basically as another consumer protection issue; the problem which needs to be solved is how best to do it without dragging in the taxpayer.
October 2, 2012
The deposit guarantee is ultimately made by taxpayers. It is not insurance in the normal sense of the term. If other banks had to pay Northern Rock’s retail depositors, let alone the deposits of a larger bank, they would have failed in their turn. The scheme can only be funded by banks if only very small fringe banks fail. The guarantee underwrites risk-taking by banks.
If you prefer regulation to market forces, that is fine, as long as you accept that regulation breeds ever more regulation, as we are now seeing, so that you might just as well have state control.
October 1, 2012
Except the same market forces could well have seen the public unable to access their money even if they didn’t loose it entirely, and don’t forget that it was the market forces you talk of that was causing the run on the banks…
October 1, 2012
Isn’t investment banking meant to be about providing services for a fee ?
Other than for underwriting why would an investment bank need a large balance sheet ?
These banks got themselves into trouble by having to loan to deposit ratios which were far too high and indulging in proprietary trading , especially of geared derivative instruments .
It’s factually incorrect to refer to these activities as investment banking and for confirmation that they weren’t an investment bank would not have required large large balance sheets .
Isn’t it about time we referred to these banks past activities as gambling rather than try to airbrush them with the veil of respectability by calling them investment banking ?
As it stands referring to them as investment banking is as dishonest as people who should know better referring to “paying down the deficit” .
October 1, 2012
I hope that Mr Redwood will continue to lose no opportunity to remind everyone just who was supposed to be in charge in 2007/8.
Is Mr R saying that a Glass Steagall solution has had its day globally? To my mind, there needs to be a very convincing argument against such a solution when the public debate is so predisposed against bankers.
October 1, 2012
One needs to go back a lot further than 2007/8, even further than 1997 to get to the root cause of the problems, Barings Bank should have acted as a warning but megabucks deals, Porsche’s and champaign lunches)were still more important – after all it was just one rogue trader/deal…
October 1, 2012
Vickers was right ; the banks should be split , he was not in favour of putting “walls” between the High Street Commercial activity and the Investment Banking activity. The system that existed before worked effectively ; the “blurring” that has happened since pushed the High Streeters into fields they were unfamiliar with dragging in ill-prepared and inexperienced staff and forcing them to compete. The Investment Banks required much more highly skilled staff and were right to keep themselves apart .Banking regulation has to be stiffened up and given the means to impose discipline . This is not a Party Political issue .
October 1, 2012
I think High St banks should be for the High St and not for speculation on world markets has happened before; therefore splitting the banks would be a good thing. Investments banking should stand alone and take the risks they take, on not depend upon taxpayers to bail them out. If this had been in operation before the crisis may be we would not have had such an impact and had to bail out on such level. The banks used all available assets to bail themselves out of the mess they got into, for their own greed, not thinking about who and whom would lose money in the process. It shows they cannot be trusted and therefore deserve to be spilt and regulated by government. People lost personal money over their actions, and now they are not trusted. Myself, I prefer building societies who appear to have some general feeling of responsiblity, mutual ones only. No, Mr R. spitting them is the only way to protect the taxpayers and the public from their greed, and they will try it again in another guise if not stopped. Trust has gone.
October 1, 2012
We did have the equivalent to Glass-Steagall in this country; on the other hand, our ‘investment’ banks were called ‘merchant’ banks and did not generally engage in the types of predatory behaviour which had been the norm in the USA, and which was encouraged by the non-federal, non-reserve, non-bank of new york on whose board representatives of the major predatory banks also sat. Obviously, giving these folks unlimited access to the funds of deposit taking banks, meant that their predatory behaviours became supercharged; furthermore, this model of behaviour became the norm in the City, as well.
As JR suggests, the 2008 crash had more than one cause; however the crash did suggest that the banks communally had evolved business models which simply could not be sustained through a major market adjustment; that is a very bad business model, indeed.
Politicians like simple solutions to complex problems which they, and they hope their prospective supporters, can understand. However, there are multiple issues with the way the banking industry operated in this country and a proper solution would involve identifying and tackling each and every one.
Firstly, there is the issue of leadership; clearly an example of which was paraded before the treasury select committee was quite remarkably underwhelming. How did such individuals succeed in becoming leaders of a very major British financial institution? Can we afford the success of our economy to be dependent on such as those?
There is a major problem with pay and conditions. The gross over-remuneration of some quite ordinary people has meant considerable corner-cutting in the way banks present to the marketplace, with it being reported today that the FSA consider 40,000 complex products may have been missold to customers. When ethical services cannot feed the beast, then unethical products will see the light of day.
One of the easiest ways to go bust in a downturn is to have an asset base substantially derived from proprietory trading and invested in complex derivatives. In order for banks to provide a full banking service to all classes of client, it is not apparent that proprietory trading would be essential to that. Furthermore, there are now institutions which in a market are engaged in proprietory trading involving long and short positions, short term (milleseconds and including various categories of front running), marketmaking, and agency dealing. There have to be severe conflicts of interest. There needs to be a complete clean up of the individual markets to ensure that legitimate market participants ie the producers and consumers are being provided with a service and not being ripped off. Entering a market or presiding over it with the sole purpose of milking rather than buying or selling or providing a service needs to be outlawed. Most markets now do not support price discovery and do not present a genuine picture of supply and demand as a result of the volatility and sustained very long or short positions deliberately created to rig the market.
RBS should be split up as soon as practical which encludes ensuring that the bank, having laid of its competant, experieced IT people, is not still clowning around with a significant proportion of its support staff of little experience and unknown calibre (overseas-ed); splitting a bank up has far more IT implications in terms of change management than taking on a new online banking transaction source which ended in grief.
October 1, 2012
“We did NOT have the equivalent to Glass-Steagall in this country” – apologies
October 1, 2012
It’s a pity that you didn’t win the arguement for controlled administration of RBS (and HBOS as it then was) in 2008. The decision to buy over valued shares has since cost the UK taxpayer £33 billion – and we’re not done yet.
RBS should be fairly easy to break up. A lot of the business is still trading under the original brand names. Separating out HBOS will be more difficult because Lloyds made a strong drive for integration after acquisition. Also, HM government ‘only’ owns 40 odd percent of Lloyds shares.
I don’t mind risky and non-risky banking mixing, just so long as the mix is controlled. It will help to keep bank charges down because free banking will not last for ever. The system I favour is for a single account to charge me for each transaction and pay me (decent) interest on my average monthly balance. That’s fair, isn’t it?
reply: indeed – I got about one interview on the BBC to every 10 Cable was allowed to -put the case for nationalisation.
October 1, 2012
To Reply: Indeed I remember, it was yet another BBC outrage several every day.
Another with Jack Straw this morning promoting his book “I could have stopped us going to war in Iraq” well why on earth did he not do so?
Also why did he not do anything about the police outrages over the Hillsborough tragedy? Sensible questions such as these from the BBC came there none.
October 1, 2012
Meanwhile there is ample anecdotal evidence for massive banker fraud, not least LIBOR, and self cert mortgages. When will this be tested in court? Or are large crimes immune from prosecution, while we instead focus on kids stealing bottled water ?
October 3, 2012
Its nauseating..the selective nature of our funding for the regulation and law making process. How do we guard the guards, because they act like sleeping dogs with fat bellies, who put a playact on then go back to sleep.
October 1, 2012
I tend to see Labour as the party of the bankers. They always spend more than the country earns so they need the lenders advising them. Weren’t nearly all of Brown’s advisers bankers?
Ed Milliband has got it in for the savings and pensions industry. The average amc for new company schemes I believe is just over 0.5% and heavily regulated. I also believe the peoposed charge for banking equates to 2%. A credit card often charges around 21 to 24% regardless of interest / libor rates yet Milliband sees the savings and pensions industry as a problem. That said, this government doesn’t seem fussed about bank charges and profit margins either.
October 1, 2012
I’ve never seen much evidence that restricting bank size has much impact in preventing banking crises. The great depression was caused by small or regional bank failures, the savings and loans crises dito.
What causes bank crises are (a) high debt to gdp ratio – in the great depression debt to dgp was around 180 percent and in this latest recession it started at somewhere over 250% (b) a proximate economic shock and (c) the failure of the central bank to act creditably to reassure depositers.
That doesn’t mean I think that the banks were well regulated, or that such huge banks are good for democracy. It iss too easy for a bank the size of RBS to buy the reguators and laws it desires (this doesn’t mean I think RBS did this)
At a fundamental level, banking crises only happen to badly mismanaged economies. A large part of the fault has to be placed on the european union for the UK banking crises, along with the bank of england. How could they not see the debt to gdp figures were not a banking crises ready to happen?
October 1, 2012
Sorry about the typo’s – I have not got the hang of posting via my phone.
October 1, 2012
Nationalisation of the banks was a serious mistake. The history of nationalisation has been a history of total failure, governments should never be allowed to run anything this argument applies to both the public and private sector. The only area where government should have some involvement is defence of the UK. If welfare, health and education were privatised this would soon remove the deficit, and we would all be richer, healthier and better educated, and if we removed the British state brainwashing service most people would be able to think for themselves.
October 1, 2012
But which way are the present government leading us
Government expanding exponentially
Taxes rising uncontrollably
Regulation becoming a self perpetuating entity
The above is a definite recipe for eventual long term depression and Armageddon, and encouraged by directives from the EUSSR. Good governance is everything, and the only time in my life I have ever experienced it was under Margaret Thatcher the greatest peacetime PM of the 20th century.
October 2, 2012
Some people believe that holding RBS shares could be a good thing in spite of the lack of dividends, and the staggeringly slow recovery of the share price.
I wonder if anyone has the figures for the amount of Billions paid back to the government with interest since the bailout? What size is the current debt and is the slow but steady recovery of the share price due to the sterling work of Hester and his dedicated wage earning staff?
The retail banking side of RBS has suffered greatly since the collapse of the share price and their share save schemes when the investment arms along with all the rest went down the pan. Like many organisations their efforts were rewarded over the years with shares which became almost worthless. Again self inflicted wounds by management ‘PPI and other tragedies’ have delayed the recovery.
Lets not damn this bank yet, we do not know what deals and pressures existed when the collapse occurred by the government in the smoke filled and malt whisky flavoured banking parlours. I do know this bank is suffering and its staff and they deserve a job and a future as does my shares.
October 2, 2012
RBS, and the Lloyd’s conglomerate are the result of crony capitalism. RBS is not responsible for the current lack of growth any more than anyone else. Regulation and central bank manipulation are the main reasons and the fact that we privatise profit and socialise loses. Until we get back to rewarding success and punishing failure everything will remain the same.
Yes the banks need to be smaller but that will not fix the economy and we should not force the issue as that will just end up costing us money
If the heads of those who can actually make change were screwed on correctly we would have already changed the tax system to favour Mutuals, to favour small backs, to allow them to compete on an even playing field with the large banks. In this way we would get new entrants into the market who would compete for our money and in doing so offer a better service and innovation that the big banks just can not do.
This is the way forward. Let the market (you and I) decide what we want, not our idiot political class and establishment who only want the status quo to remain.
October 2, 2012
Agreed, Peter Geany. The system worked much better when prudently run building societies lent for house purchase (where they were more competitive than banks) and banks lent to business. The drive for demutualisation was not one of the great achievements of Mrs Thatcher’s government and has led to a drastic and predictable cut in competition. Unfortunately, some influential Conservatives at that time thought mutuals and co-ops were “socialist” and therefore bad.
Reply: Not so. Conservatives have always liked the mutual tradition as well as the for profit tradition. There is a lot of romance about the old mutuals. The truth is mutuals can and do get into trouble as well – they often have less reserve as they distribute more profit to the mutual owners. Equitable Life was a mutual. Various small mutual Building Socities had to merge or be taken over to guarantee their future.
October 2, 2012
PS: It was of course the City that led the charge and made vast sums from the fees, consultancy, brokerage and takeover business.
October 2, 2012
Agreed, that any business can get into trouble. But if you spare the time to listen to these speeches, you will note that our regulators allowed poor judgement to be rewarded for far too long which prompted a feeling that Mutual’s and small banks need to get a greater return on capital. What everyone needs to be constantly reminded of is that if you make extraordinary profits it won’t last as other will join in. Also someone must be taking advantage in an unfair way if it’s a service which banks are. Manufacturing is a different case. Although these are primarily about the US, the sentiment is bang on queue for the UK and Europe.
http://www.aynrand.org/site/PageServer?pagename=reg_ls_financial_crisis
Regulation should be all about protecting the individual from corporates and government, not about “how to do your job”. We can use the tax system to take a greater amount from banks that gain more than 5 % of the retail market and really ramp it up if they have 10%. In this way we can offer hope to the smaller niche operator that corporates cannot just run them out of business.
Our competition regulators spend all their time chasing shadows over matters of little consequence like internet browsers and regulate everything in banks other than what is really needed.
I say it’s time for some original and innovative thought about regulation and what purpose it servers, from people who are not those who got us into the mess. But first we need to be rid of the EU for reasons we all know about.
October 3, 2012
Yes excellent idea , tax larger corporations more as they take more of the market. Might work with a unitary tax system, as profits as are increasingly presented as made in low/no tax areas.
Removing the tax deductability of interest v equity would help also.
October 3, 2012
Just a thought one of the links I posted was removed. Did it not work or was it censored? I can’t for the life of me see why it would be censored as it get to the heart of the issue of crony capitalism and is a central theme of the other lecture. Here it is again
Reply: I often lack time to read the whole of a submitted site I do not know. This one, on inspection, is mainly piling personal abuse onto the Head of the Fed. Please summarise the main sensible criticisms for a posting here.
October 4, 2012
I was going to offer a reply and spent an hour crafting it, but on second thought its a waste of time. Perhaps I have misjudged you
October 4, 2012
On second thoughts you obviously listened to the first few minutes and thought that was it. If you had listened further you would have picked up the bit about the S&P 500. Listen to it John as it is even more shocking than network rails derivative dealing. I put my real name up and real face up while most hide. How about you trust what I post as being credible. I would have something to lose by being an idiot, and take a bit of a risk bringing to everyones attention what is really going on. The message from John Allison in his 1 hour 20min address is the same as that from David Stockman. The Fed is the root cause of America’s recent problems, and its inability to get out of the mire. Kicking the can down the road.